7th Circuit Certifies Workers’ Compensation Exemption Question to Illinois Supreme Court

Posted by NCBRC - March 27, 2019

The Seventh Circuit Court of Appeals has certified a question to the Illinois Supreme Court concerning “whether the Illinois Workers’ Compensation Act [IWCA], as amended, allows care-provider creditors to reach the proceeds of workers’ compensation claims.” In re Hernandez, No. 18-1789 (7th Cir. March 18, 2019).

When Elena Hernandez filed for chapter 7 bankruptcy, she listed a workers’ compensation claim in the amount of $31,000 and claimed the entire amount as exempt under Illinois law. She also listed health care debts arising out of work-related injuries of over $130,000. She settled her workers’ compensation claim shortly after filing her bankruptcy petition. The healthcare providers objected to the exemption on two bases: first, that the IWCA as amended, permitted them to reach the workers’ compensation settlement; and second, that the settlement was the product of fraud. After a hearing, the bankruptcy court denied the exemption on the basis of fraud without reaching the statutory objection. The district court, however, based its affirmance on interpretation of the IWCA. Ms. Hernandez appealed to the Seventh Circuit.

Section 21 of the IWCA provides: “No payment, claim, award or decision under this Act shall be assignable or subject to any lien, attachment or garnishment, or be held liable in any way for any lien, debt, penalty or damages.” Although the Illinois Supreme Court has never addressed the issue, the parties do not dispute that this section creates an exemption in bankruptcy for workers’ compensation claims. The disagreement arises out of whether amendments to the Illinois statute carved out an exception to this exemption for healthcare providers.

In 2005, the Illinois legislature amended the IWCA by limiting how much healthcare providers can charge for treatment of work-related injuries. In the case of undisputed claims, the amendments permit healthcare providers to bill and be paid by the employers directly. The amendments also ended the practice of allowing a healthcare provider to bill the employee for any fees not paid by the employer. Where the employer disputes the workers’ compensation claim, the amendments provide that if the employee challenges the employer’s position, the healthcare provider may not bill the employee or the employer until resolution of the dispute, and the statute of limitations on the debt is tolled. Perhaps most significantly, under new section 8.2(e-20) of the IWCA, in the event a disputed workers’ compensation claim is settled, the healthcare provider is then free to seek payment from the employee. The Illinois legislature did not alter the language of section 21.

The healthcare providers argued that permitting Ms. Hernandez to exempt her workers’ compensation settlement from the reach of the work-injury healthcare providers would obviate the language of section 8.2(e-20), and run counter to the state legislature’s intention of allowing healthcare providers access to workers’ compensation funds in exchange for capping the amounts they can charge for treatment.

On the other hand, Ms. Hernandez argued that section 21 was not altered by the amendments and had the state legislature intended to create an exception to the exemption, it could have done so in plain language.

The Seventh Circuit found merit to both sides. Adopting the healthcare providers’ view would harmonize with the legislature’s obvious goal of protecting those providers and would advance the goal of encouraging healthcare providers to provide care to people injured in work-related accidents. The court agreed, however, that while Ms. Hernandez’s interpretation would hinder the effectiveness of the amendments, it would not necessarily render any provision absurd or surplusage.

Finding itself “genuinely uncertain about a question of state law that is key to a correct disposition” of the case before it, the circuit court granted the parties’ motion to certify the following question to the Illinois Supreme Court:

“After the 2005 amendments to 820 ILL. COMP. STAT. 305/8 and the enactment of 305/8.2, does section 21 of the Illinois Workers’ Compensation Act exempt the proceeds of a workers’ compensation settlement from the claims of medical-care providers who treated the illness or injury associated with that settlement?”

Hernandez 7th Cir March 2019 cert question

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